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Merger Objection Lawsuit

Merger Objection Lawsuit

Definition

A lawsuit filed by dissatisfied shareholders of a company that is soon to be or has recently been acquired by another company. Merger objection lawsuits usually name directors and officers of the acquired company as defendants, who shareholders believe have breached their fiduciary duty to protect their interests in the course of negotiating and consummating the merger transaction.

Merger objection suits typically assert that the acquisition process was conducted in an unfair manner and that directors and officers may have had conflicts of interest that negatively impacted the structure of the acquisition, all of which operated to the financial detriment of shareholders.

The acquired company and its directors and officers are almost always named as defendants in merger objection suits, but the acquiring company, along with its directors and officers, are also frequently named, particularly if the allegation is either (1) inadequate consideration (i.e., the per-share price shareholders were paid was too low) or (2) conflict of interest (directors/officers were unduly enriched personally by the acquisition).

Damages associated with merger objection claims are relatively low (usually less than $1 million) compared with securities class action lawsuits. In addition to settlement amounts, merger objection claims also usually require that the directors and officers of both the acquired and acquiring companies provide more detailed disclosures about the actual merger transaction, along with the individual financial benefit they derive from it. However, from the standpoint of the plaintiffs' attorneys who represent shareholders, the real incentive for bringing merger objection suits is that settlements also typically incorporate monies for these plaintiffs attorneys' fees, which are often substantial, sometimes reaching into the low seven figures.

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